Global deepwater oil production to hit new record in 2019

Global deepwater liquid production is set to jump by 700,000 barrels per day, bpd from 2018 to reach a record-high of 10.3 million bpd in 2019, due to new fields coming on stream in Brazil and the US Gulf of Mexico, Rystad, Oslo, Norway –based energy research firm said. In addition to Brazil and the United States, the other biggest deepwater producers will be Angola, Norway, and Nigeria, according to Rystad.

This is coming at a time Wood Mackenzie, United Kingdom- based energy research and consultant stated that total annual deepwater capital expenditure, CAPEX, is expected to rise from around US$50 billion currently to nearly US$60 billion by 2022. This rise will be driven by big projects in Guyana, Brazil and Mozambique. For the U.S. Gulf of Mexico, Wood Mackenzie expects “a historic year” in 2019, with Shell’s Appomattox marking the first production ever from a Jurassic reservoir in the Gulf of Mexico. Drilling in the area is also set to post the first increase in four years and new projects are expected to be sanctioned, according to WoodMac. Operators have driven down the cost of developing new deepwater barrels by more than 50 per cent since 2013, Wood Mackenzie said.

According to the consultancy’s data and analysis, the most competitive region for deepwater is the Americas, and in particular Brazil, Guyana, and the Gulf of Mexico. In those areas, more than 50 billion barrels of oil equivalent, boe of pre and post-sanction deepwater developments are now profitable below an oil price of US$60 a barrel, based on break-even costs. The industry has started to increase investments in deepwater after the downturn, encouraged by the cost cuts and realising that offshore resources would be important for meeting demand growth, WoodMac said. It also stated that the higher spending on deepwater, however, will lead to cost inflation, which may end the cost reduction streak for exploration and production companies. “We believe that many cost savings are not as ‘sticky’ as industry suggests, and are sceptical that many will stand the test of time during a sustained cyclical uptick,” Wood Mackenzie research director, Angus Rodger said.

Wood Mackenzie also stated that the deepwater industry appears in good health, following a sustained cost reduction through the downturn.

Oil Vessel

However, this hard work is in danger of being undone, as impending cyclical cost inflation could raise break-even costs once again. The cost of developing new deepwater barrels has fallen over 50 per,cent since 2013, according to Wood Mackenzie data and analysis.

The most important steps deepwater operators have taken to achieve lower costs, and therefore better returns, include: downsizing projects; a greater focus on subsea tiebacks and Brownfield developments over Greenfield; reduced project lead times; reduced well counts; more phasing of larger developments; faster well completions; better project execution; lower rig/service sector costs. “One of the key drivers in cost reduction in deepwater projects is lower rig costs, which is a cyclical factor,” said research director Angus Rodger. “But more importantly, there have also been big structural changes, such as the faster drilling of wells. For example, in the US Gulf of Mexico it now takes half the time to drill a deepwater well compared to 2014,” added Rodger.